Home > Articles

  • Print
  • + Share This
This chapter is from the book

Only a handful of people left.

Many other things came with that commitment. Railway Express Agency (REA), a major competitor, went out of business, and we were able to capture the lion's share of its customers. United Airlines went on strike, leaving our air freight forwarder competitors without the ability to move freight, and our volume increased.

Fred Smith went to Las Vegas and won $29,000 on the blackjack tables—enough to meet payroll for another week.

A pilot used his personal credit card to pay a fuel bill and get the sheriff's patrol car out from in front of the airplane. A driver hocked his watch to purchase fuel to complete his deliveries. There were hundreds of stories of employees going far beyond the call of duty to deliver absolutely positively overnight when they didn't get much support from the top.

This was because the natural system of goal/relevance/action/feedback was functioning flawlessly.

Probably the most outrageous story was a last-ditch effort in July 1973. We were out of money, our creditors were out of patience, and there was no light at the end of the tunnel. Most of us in senior management gave up once a week in those days. Then we'd run into Fred and walk away believing we were about to conquer the world.

I only saw Fred give up twice in three years, and in July 1973 he had given up. His first principle of finance was no longer working: "When you borrow, borrow big. Then, when things go wrong, you have partners instead of creditors."

Well, things had gone wrong. Our lawyers and accountants had done all they could do to hold off the creditors, but it was all over. It was Saturday morning, and, if we didn't have $1 million in the bank by open of business Monday morning, we were out of business. Fred had given up. He was ready to close the doors on Monday morning.

As a last-ditch effort, one of our attorneys had arranged a one-hour meeting in Chicago that afternoon with Henry Crown, the majority shareholder of General Dynamics. Henry had never heard of Fred or Federal Express. Fred had one hour to deliver a presentation and walk away with a $1 million cashier's check, or we were done. Talk about sales pressure.

Fred sold an option to purchase 80% of the company for a down payment of $1 million, and we stayed alive through the summer and into the fall until the venture capital came in—the first of three financing rounds that, at that time, represented the biggest venture capital start-up in American history.

Today, or at least during the .com bonanza, the $120 million we raised is a drop in the bucket, but, during those days, it was an enormous undertaking. Not making a profit for three years was not in the dictionary of the venture people.

When looking back, it was traumatic and, I believe, necessary.

Interestingly what would have been worse is to have gotten the 300 packages that first night. I believe we would have gotten sloppy about service and customer focus. Because we had just two customer packages, we became obsessed as a company with GETTING THE PACKAGES.

This vision didn't come in the form of a mandate from on high. It was blatantly obvious that PACKAGES were our only hope, although actions were taken by management to make it crystal clear to everyone. That obsession led to a strong service culture that has lasted decades and gets stronger all the time.

Federal Express' obsession with the conscious development of customer-focused systems and the use of technology has enabled it to maintain market share in the face of ruthless competition.

Fortunately, money or no, we had to build systems to maintain airplanes and flight rules, and that led to building systems for nearly every part of the operation.

Maintaining the spirit of the entrepreneurial company while doubling every year and moving toward bigness is a formidable task and can only be accomplished by systematizing nearly every part of the operation, from how people get to their jobs to how packages are sorted and tracked to what planes fly where and who flies them.

By systems here, we don't mean just information systems, but rather cause-and-effect systems. If this choice is made, this is the likely outcome. People are driven primarily by systems as used in this context. Well-designed systems tie choice and actions to outcome.

For example, if an organization recognizes certain behaviors, more of those behaviors will occur over time. If the recognition is for behaviors not desired, nonetheless, more of those negative behaviors will occur. If Diane were ridiculed for getting the wedding dress to the wedding, the service ethic at Federal Express would have turned into a cost focus leading to relatively poor service over time and continued dominance by UPS, even in the air business.

I will show some of the changes Federal Express has made through the years to remain customer focused as it continues to grow from two packages that first night to more than 4 million packages (just Federal Express express air packages) today.

The overall lesson for our current economy is that only your employees can keep you innovating and evolving constantly, or only your employees can contract the deadly disease of Customer Cancer. Only well-designed goal/relevance/action/feedback systems can optimize your employees' focus on giving power to customers.

Customer Cancer is a term I use to express organizational systems run amuck. Instead of customer focus, the cells or employees begin to focus on each other or on themselves rather than the greater good where everyone wins.

Customer Cancer is not a disease caused by competitors, by government regulation, or the economy. It is a disease of indifference, poor focus by corporate leaders, and the lack of CustomerCulture. Customer Cancer is a disease that is contracted only from within.

Human cancer research has shown that, "Unlike normal body cells, they [cancer cells] disregard the needs of the community of cells. They are selfish and unsociable and are only interested in their own proliferative advantage."

An example of Customer Cancer in a related organization is the United States Postal Service (USPS).

A contractor friend of mine was walking with the postmaster through a local post office preparing to bid on some construction work. He spotted a $20 bill on the floor and began to stoop down to pick it up when the postmaster held him back and explained, "That is bait to catch thieves. The mirror you see over there is a two-way mirror, and there's a security guard watching to see who picks it up."

It's no wonder postal service employees are not customer focused. It is not easy to change a culture that ingrained and that large, but, starting with one postal facility at a time, it is possible, and it must start with a degree of employee trust. Certainly both UPS and Federal Express have their share of employee theft, but there are far better ways of handling it than tempting honest employees to find $20. That is Customer Cancer.

This same phenomenon happens in companies that don't walk the talk when it comes to focusing on employee and customer well-being. I have yet to talk with or even hear about CEOs that don't say employees and customers were their primary focus. The problem is that 95% talk about it and 5% demonstrate it through their employees' actions and behaviors. It is those behaviors that reflect the prevailing culture, not the platitudes of senior managers.

Fred Smith had several thoughts on this subject:

"Give employees a sense of control over their own destiny, and they'll do anything you ask—and more." Systems must be designed to give employees and customers control of their relationship with you and their customers.

"When an employee wants a raise, only the customer can grant it. It is up to the employees to figure out how to add enough additional value to get the customer to pay for it. Customers will pay if there is value. Stockholders won't." Systems provide the reward and the focus for employees to understand this reality and to constantly look for ways to add value to the customer's experience.

"The sun will not set on an unresolved customer or employee problem, meaning that, if the problem cannot be resolved, at least it will be dealt with and the people involved will be aware that it is being dealt with." Systems provide the sense of urgency.

On his second comment, being people first doesn't mean being the parent and entitling employees to all the benefits and rewards without accountability and performance. It doesn't mean taking care of people, but rather demanding the best from every person.

This book shows how many companies have been able to build power with customer focus. It also shows how focus on products and engineering at the expense of the customer (Customer Cancer) will gradually mean the decline of big business in favor of a more distributed model.

Being customer focused is a must in the new economy. Those company leaders that believe it is not will lose. The Internet just may be the asteroid that kills the dinosaur.

CustomerCulture uses the Federal Express story and other reference stories to drive home the importance of systems.

These reference stories act as springboards to creating a positive customer experience by demonstrating the power and need for the underlying systems that focus employees on customers—an experience that parallels the experience of the woman from the small town in Indiana.

It's no longer about customer service. It's about congruent and continuous customer experiences driven by culturalizing nearly every interaction. This means systematizing the routine and humanizing the exception. It means having all employees vitally aware of the need for customer loyalty, whether they design computer screens, fly airplanes, manufacture things, or pay expense accounts.

If the experience is bad, we'll see Customer Cancers developing. If it is good, we have customer health and longevity.

The Federal Express story told in this chapter is nearly 30 years old, but the principles and the stories told in subsequent chapters underline the cultural principles that have made and are making companies throughout the world great today.

  • + Share This
  • 🔖 Save To Your Account